Tajikistan is the poorest of the post-Soviet republics with a per capita income in 2001 of less than $300 ($1,140 in purchasing power parity terms—PPP—terms) and an estimated 80% of the population below the poverty line. Two thirds of the labor force is still in agriculture, which is dominated by cotton production and accounts for 19% of GDP. Industry is poorly developed, providing 25% of GDP and only 7.5% of total employment, and consisting of one large aluminum smelter operating at a fraction of its capacity, electric power facilities producing only a fraction of the country's potential hydroelectric power, and small plants engaged in food processing and light industry, virtually all in need of upgrading and modernization. Imports provide the large majority of manufactured consumer goods. Deposits of nonferrous metals are significant but undeveloped.
Tajikistan's economy was among the worst affected by the problems of transition from a command economy, with hyperinflation and the collapse of industrial production aggravated by a five-year, three-way civil war (1992 to 1997) that claimed 150,000 lives, produced thousands of refugees, and delayed the reforms needed to make the adjustment. Already beginning to falter in the late 1980s, GDP declined 0.6% and8.7% in 1990 and 1991. Legislation in 1992 aimed at laying the groundwork for the transition to a market economy and creating conditions hospitable to foreign investment was overtaken by spiraling inflation and the outbreak of civil war in the that summer. The economy emerged dependent—on volatile world prices for cotton and aluminum, on neighbors Russia and Uzbekistan, on imports of capital goods, and on international humanitarian assistance for much of its basic subsistence needs. Inflation spiraled to 1500% in before being brought down to single digits—5% in 1996 and 2.7% in 1997—by a tight monetary policy, but GDP continued to shrink, by 12.4% in 1995 and by almost 17% in 1996. In all, GDP fell 32.6% 1991 to 1996. The financial crisis in Russia, source of 16% of Tajikistan's imports and market for 30% of its exports, was transmitted to the economy, throwing it back into double digit inflation. End of period inflation as measured by the consumer price index (CPI) reached 30.1% in 1999 and 60.6% in 2000 before being brought down by corrective actions to 12.5% in 2001. Nevertheless, after the ceasefire in 1997 Tajikistan has had five years of real GDP growth, 5% in 1998 and 3.7% in 1999, accelerating to 8.3% in 2000, 10.1% in 2001 and 9% in 2002.
The economy is far from out of the woods. Despite accumulated growth of more than 32% from 1997 to 2001 output had still only reached 43% of the 1991 level. Besides the damage done to the infrastructure during the civil war, the economy became saddled with a large external debt, estimated at 113% of GDP in 2000. By early 2003, progress had been made in reducing the relative size of the foreign debt to 88% of GDP ($985 million), down from 98% the year before. Despite the concessional nature of most of its external finance, the grace periods have expired and substantial repayments are due, most to the IMF., and will likely require a Paris Club rescheduling. The increased cotton and aluminum production that is the basis of recent growth, moreover, has contributed little to solving the country's unemployment and underemployment problems. The official unemployment rate for 2001 was 20% but observers estimate that the true figure is about one-third unemployed. Many Tajiks are forced to go abroad for work, and as of 2001, an estimated 500,000 to 700,000 live and work abroad, permanently or seasonally. With the formal economy failing to lift most of the population out of poverty, it in not surprising that added to the country's problems are reports of increased drug smuggling from neighboring Afghanistan. Tajikistan has rich mineral resources, including silver and tungsten and huge hydroelectric potential, but foreign investment in this politically and economically unstable region has been small to date, amounting to less than $30 million in 2002.